Good evening, and thank you for participating in the Q3 2015 Earnings Conference Call of Melco Crown Entertainment Limited. At this time, all participants are in a listen-only mode. After the call, we will conduct a question-and-answer session. Today's conference is being recorded. I would now like to turn the call over to Geoffrey Davis, Chief Financial Officer of Melco Crown Entertainment Limited.

Thank you, operator, and thanks everyone for joining us today for our third quarter 2015 earnings call. On the call with me today are Lawrence Ho, Ted Chan, and Ross Dunwoody. Before we get started, please note that today's discussion may contain forward-looking statements made under the Safe Harbor provision of federal securities laws. Our actual results could differ from our anticipated results. I will now turn the call over to Lawrence.

Hi, everyone. I’m pleased to announce a strong set of results in the third quarter with Macau property EBITDA expanding over 10% sequentially to approximately US$215 million and Macau property EBITDA margin improving over 200 basis points sequentially to over 25%. These results in a difficult environment in Macau highlight our ability to outperform the market in a disciplined manner, due to our uniquely positioned premium-focused properties, our market-leading customer service and our diverse offering of non-gaming amenities. I’m pleased to announce that another one of our restaurants at City of Dreams, Shinji by Kanesaka was recently awarded a Michelin star while The Tasting Room and Jade Dragon were both awarded two Michelin stars each bringing the total Michelin stars at the City of Dreams to five, which is more than any other property in Cotai. This is further evidence of City of Dreams unique premium positioning, which enables us to compete at the highest levels by leveraging our world-class products and services. In addition to the strong results at our current operations into Macau, I’m delighted that we have successfully opened Studio City, the most highly anticipated property in several years in Macau and a major milestone for our company. With the opening of our second major integrated resort in Cotai, we have once again changed the entertainment landscape in Macau, building on our world-class attractions at City of Dreams. Studio City’s ability to attract the world’s biggest star has put Macau on the map globally. The positioning of Studio City and its unique non-gaming amenities provides an ideal complement to our current operations, enabling us to expand our potential target market and increase the appeal of Macau to a broader audience in China and around the region. The property includes Asia’s highest and the world’s first Figure-8 Ferris…

Thank you, Lawrence. We reported property EBITDA of 237 million in the third quarter of 2015 compared to 306 million in the third quarter of last year. Our property EBITDA margin in the third quarter of 2015, including City of Dreams Manila, was more than 25% compared to 23% in the second quarter of 2015. In Macau, our property EBITDA margin also expanded to over 25% representing an increase of more than 200 basis points versus that in the second quarter of 2015. The EBITDA contribution from our non-VIP segments continues to represent over 90% of luck-adjusted EBITDA at City of Dreams and on a Macau-wide basis. Our luck-adjusted EBITDA was not materially different to our actual results, while our luck-adjusted property EBITDA margins expanded almost 270 basis points sequentially to approximately 25%. As we mentioned in our prior quarter, we identified 50 million of annualized cost savings, which are on track to meet and hopefully exceed by the fourth quarter this year. Despite Studio City’s exceptional gaming and non-gaming offerings, the property opened in line with the previously announced design and construction budget of 2.3 billion. In fact, there were modest savings against this budget. As we normally do, we’ll give you some guidance on non-operating line items for the upcoming quarter. Total depreciation and amortization expense is expected to be approximately 135 million to 140 million including approximately 35 million in Studio City. Corporate expense is expected to come in at approximately 30 million to 32 million and consolidated net interest expense is expected to be approximately 63 million, which includes finance lease interest of US$11 million relating to City of Dreams Manila, net of approximately 14 million of total capitalized interest. For those that follow City of Dreams Manila more closely, our building lease payment for the third quarter of 2015 was approximately US$6 million. That concludes our prepared remarks. Operator, back to you for Q&A.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. The first question comes from the line of Mr. Joseph Greff from JPMorgan. Please go ahead.

Good morning all. Can you just talk a little bit about how you’re viewing the expected ramp at Studio City and then maybe the corresponding impact, if any, that you’re expecting at City of Dreams both on a qualitative and maybe a quantitative basis? I guess, we’re trying to – I guess we’re all just trying to figure out is how to think about the operating expense structure initially as you’re looking to ramp up the top line? Thank you.

Sorry, Joe, I missed the first part. You said to what grant [ph] at Studio City – it’s Lawrence here by the way.

Yes, Lawrence, just how you’re thinking about – I know it’s early days just the ramp over the next few quarters at Studio City both from maybe a revenue perspective and also from an OpEx perspective? And then correspondingly, what you’re expecting to see impacted at City of Dreams and just extra thoughts both on a qualitative and a quantitative basis?

Sure. Okay. Joe, it’s Lawrence here. Maybe I’ll give the question to Ted and Geoff later on to fill in more details. But Studio City has been opened for eight days and we couldn’t be more happy. I think even in terms of looking at the month end data, in actual fact if you look at the October numbers, Studio City was really opened for only three and a half days because those days end on October 30 rather than October 31. So it’s three and a half days of operating data. In terms of visitation hotel, we couldn’t be happier. It’s been from a hotel data point, it’s over 90% occupied already between the 1,600 rooms. So when you think that within the Melco Crown portfolio, we more than doubled our hotel room inventory on opening of Studio City and we’re already selling those rooms at 90%. I don’t know about – it’s the first mass only property that’s opened in Macau ever but looking at the volume between City of Dreams, Altira and Studio City, Melco Crown [Technical Difficulty] share of the market has certainly grown. And so I think in terms of ramping up, I think I’ll leave Ted to talk about that because ramping up also depends on the market. And while we’re very happy with the opening of Studio City and the build out of it, I think we got great value for the $2.3 billion costs, everything was on time, on budget. But at the same time, we are opening Studio City in probably one of the worst timings in Macau’s history. So in terms of the ramp up, Ted and his team has done numerous analyses over the last two years.

Yes, Lawrence. I think in terms of more specific on the performance in the first eight days, we’re happy to see non-gaming becomes very, very well. Occupancy is over 90%. And even if we look at the forward bookings, we are over mid-80% as of today for November and close to 70% in December. It’s about time that we are going to optimize our room ADR and ADP already, so it’s a very, very good time. And as you know, major properties are opening in Cotai. It takes about at least one and a half years to ramp up fully and I’m sure we are able to ramp up quicker due to numerous initiatives including that we transfer a majority of our gaming colleagues from the current operation to Studio City so that the ramp up time will substantially reduce in reference to the other properties.

Great, thank you. I know it maybe sort of an unanswerable question, but I appreciate your thoughts. Relative to the expense structure at City of Dreams into 3Q, has that changed meaningfully here in the 4Q upon the opening of Studio City above and beyond outside of the $25 million of cost saves that you have referred to earlier?

Joe, it’s Geoff. Of the 50 million of cost savings that we had identified, a significant majority of those will be realized in the fourth quarter but we’re always looking to be more efficient. We got some efficiencies in the second quarter and the third quarter, but the vast bulk will be in 4Q related to the opening. On an OpEx at Studio City relative to City of Dreams, it will be moderately lower than the OpEx at City of Dreams. So Studio City will have lower per day or per quarter OpEx. And you can think about, well, on the one hand City of Dreams has more tables than Studio City. Studio City has more hotel rooms and more non-gaming amenities but net-net, Studio City will be lower than City of Dreams.

Thank you.

Thank you for the questions. The next question comes from the line of Cameron McKnight from Wells Fargo. Please go ahead.

Good evening. Thanks very much. Just a general question to start. Lawrence, if you could talk about the policy environment at the moment. There’s been a significant amount of news flow over the past few weeks. Could you talk to how your most recent conversations with the government have been and how you see the broader policy environment right now?

Hi, Cameron. I think the policy outlook today is very different from say end of last year or even beginning of this year, because I guess the Macau government has realized that the market is actually very, very weak and it’s not in the shape that they’ve ever seen before. At the same time, we have heard that China or China Liaison Office is becoming more supportive and all of this is positive in the long run, because in terms of some of the rumored potential easing of travel visa, some of those in practical terms aren’t that useful in terms of increasing from, say, five days to seven days. But I think it’s really the sentiment that it conveys to our potential customer base in China and Macau is not such a bad place to go anymore, and the fact that China is not against people going to Macau. So all of these little tidbits are important and helpful.

Okay, great. Thanks. And can you talk to the table mix at Studio City, have you got premium mass tables on the floor or is does it all grow in mass?

I’ll let Ted elaborate.

Yes. We have maturity of them actually on the mass side. We got 145 in the mass area and we got 45 tables in the premium mass area, which is our signature club area. So that’s about it.

Okay, great. Thanks. That’s it for me. Thanks very much.

Thank you.

Thank you for the questions. The next question comes from the line of Harry Curtis from Nomura. Please go ahead.

Good morning, guys. Just wanted to follow up on Cameron’s question. Lawrence, you talked about perhaps the sentiment changing about going to Macau. Do you think that that extends to the premium player? Is there any change in China’s messaging there?

Well, again, I think China’s positioning about the whole anti-corruption crackdown has been pretty consistent, which is if you’re a decent human being and you haven’t committed anything wrong, you shouldn’t be afraid. And I think – of course the fear factor and the sheer amount of arrests or implications in China has been much larger than expected. But I think even for VIP players, certainly the whole VIP sector in our opinion and we’ve been saying this probably for some time now has been permanently and structurally changed. So it will never go back to the hay days where it was bubble like. In July when the transit visa was first relaxed, we did see some of our premium mass players come back as well. So I think for high spending individuals, these messages are key.

Thanks. And just one other quick question. What do your eyes tell you about the infrastructure improvement that you commented on earlier, particularly the light rail system? How much more time and money and technology is needed to get that up and running?

Well, I think infrastructure support and infrastructure improvement is in my opinion the biggest catalyst for Macau in the near future. Of course, everybody knows that the Hong Kong-Zhuhai-Macau Bridge when it comes into operation around 2018-2019 is going to be a transformational game changer for Macau. But in terms of the local infrastructure improvements, the Cotai or Pac On Ferry Terminal is supposedly going to start operation next year finally. That should be a big boost because that’s the main ferry terminal leading traffic into Macau. In terms of the light rail, although we’ve built some pretty amazing buildings but the light rail looks pretty complicated and I don’t have kind of the engineering expertise to comment on it. But it still seems like there’s quite a bit of work to go. I think for us, we can’t wait for it to be completed because we’re lucky enough to have both City of Dreams and Studio City located right at some of the main depots. And the bridge linking Studio City between the Lotus Bridge immigration border between China and Macau is going to run through the light rail station. So the moment those are done, it’s going to significantly improve access for Macau and significantly improve access for City of Dreams and Studio City as well.

Do you think that as far as some meaningful visa or other immigration release, do you think that the government is likely to be kind of – take smaller steps until that infrastructure is actually in place or is it likely that you could see something more meaningful?

Well, I’m hopeful that I think ultimately Hong Kong has probably had a negative impact on Macau as well, because in the grand scheme of things, China looked at Hong Kong and Macau side by side [indiscernible] administrative regions. And given what has happened and what has transpired in terms of Hong Kong politics and the fact that Hong Kong residents have been less than welcoming to mainland Chinese visitors, I think that supposedly is the rumor that has stopped some of the easing of further cities or easing the access of further mainland Chinese cities. I think given the marquee conditions and I think the government in Macau has been pragmatic and wise that they will understand that just the sheer message of opening up further cities even if the infrastructure isn’t there should help the overall environment, the operating environment in Macau, which again trickles down to all stakeholders, small medium enterprises and all the employees as well.

And just a quick one for Geoff and then I’ll be done. If you could discuss some of the employee moves and to what degree that impacted preopening? How much savings are you seeing there?

The employee movement as some of our staff replies to open positions at Studio City and try to move their place of work from some wholly-owned properties to Studio City, we’ve got about 5,500 FTEs at Studio City, roughly 2,000 of those are from MCE properties, primarily from Macau but also roughly 300 from Manila. So that forms the bulk of the cost savings that we have discussed previously. And again, the bulk of those won’t really flow until the fourth quarter. So they’ll comprise part of the preopening expense in October and then you’ll see that move into OpEx on opening on the 27th. So while there was maybe a few million in the third quarter, again you’re going to see the bulk of it transpire in the fourth quarter.

Okay, that’s very helpful, guys. Thanks.

Thank you.

Thank you for the questions. Our next question comes from the line of David Bain from Sterne Agee. Please go ahead.

Great. Thank you. First, congratulations on Studio City. We think it’s a great property for the Macau market. When I’m looking at my forecast of net leverage, it seems pretty low. I know the street often speaks to merger with Studio City or partner, but the property is not opened. Are there any other potential capital deployment options that the Board is reviewing to optimize the balance sheet?

Hi, Dave. I’ll let Geoff go into the details but I think now that Studio City is opened, of course the shareholders of Studio City, from Melco Crown and also Silver Point and Oaktree, we made the decision to really focus on opening Studio City well. I think we have achieved that. But at the same time, it’s no secret that we are engaging with our lenders in terms of talking about the project financing given that we received 250 tables rather than the 400. But mind you, we still have a decent development pipeline that returning capital to shareholders of course will be the number one priority, but I think over the next one or two years, we still have to finish up some of that pipeline. So, for instance, we have a massive City of Dreams retail expansion that is due to open in the middle of next year. That adds almost 300,000 square feet of space right at the main entrance of City of Dreams that will help really elevate the overall amenities and employment of City of Dreams. We’re finishing tower D, the fifth hotel tower, the one that’s designed by Zaha Hadid and it’s been very complicated to build that building but we’re finishing that. And also longer term down the road, we’ve build out about two-thirds of Studio City in order to fulfill our land grant – for the land grant, we do have to build out the remaining one-third somewhere down the road. So these are all considerations that we have in mind. But without a doubt, I think we’ve been talking about other jurisdictions in development but I think we take a very conservative view in terms of what’s happening in Japan and the speed of that market’s development. So in the absence of beyond the build out in Macau, which are obviously held in comparison to what Studio City Phase I was, the main focus would be returning capital to shareholders.

Okay. And then Lawrence, I know you and the team usually look at different scenarios and metrics when looking at perspective GGR growth. Have you looked at next year’s possibilities at this point in terms of overall growth, mass growth and VIP growth or if there’s any and if that’s too early to reply, I understand that?

We’re kind of in the nitty-gritty of budgeting and I think we’ve seen the worst in Macau but it’s really a matter of when does the real recovery start. So I think it’s a bit early to really speculate but I would say at this point in time, next year VIP will have some challenges because looking at the high base of the beginning part of this year, the relatively higher base. I think mass has stabilized and should see some reasonable growth hopefully. So I think without specifying a range or number, I think it’s going to be hopefully flattish to up a little.

Okay. And last one, I promise, on the mass win rate. Has the current expected range changed at all? I think for most properties in Macau, the mass win rate has trended below last year’s averages almost every quarter. I know smoking restrictions are a factor and a player may not play as long or is heavy [ph], but wondering if you have a view on mass win rate trends?

Maybe I’ll let Ted --

If you look at our current quarter’s number for COD, for instance, we maintain three quarters in a row that in terms of drop, it’s actually similar in the last three quarters. And in terms of whole percentage, I think we haven’t changed our range expectations. So, you see some improvement in whole percentage in the third quarter from the second quarter back to somewhere similar to the first end of last quarter last year. So I think in terms of that perspective, we haven’t changed our expectations on that front.

Okay. And from a year-over-year basis, though, it’s sort of sequential change what we see in the first three quarters, that should be a more normalized range in your view or can we get back to sort of 2014 levels and sort of moving up every quarter?

As I said earlier, I think we will remain the current range in terms of the whole percentage. So going forward in the next quarter, I think that will be similar.

All right. Thank you very much.

Thanks.

Thank you for your questions. Our next question comes from the line of Aaron Fischer from CLSA. Please go ahead.

Thanks everyone and congratulations on the results and also the opening of Studio City. Just to Lawrence’s point about the market not being great at the moment, I think a few of us are spending a lot of time thinking about profit share or profit market share over the next one to two years. And I guess we all have our own view on the ramp up at Studio City and we hope it’s short. But on City of Dreams, I’m just trying to figure out sort of the EBITDA progression over the next quarter and also the next 18 months. So I think to Joe’s question earlier on, I’m just trying to get a sense of what the EBITDA margin can be in the next quarter assuming revenues are roughly favorable based on the cost savings, just want to understand exactly where margins can go to based on you guys moving the staff across from City of Dreams to Studio City. That’s the first point. And then maybe Lawrence can talk a bit more about what’s happening at City of Dreams such as the fifth hotel tower and also the expansion of retail, which could potentially result in an increase in EBITDA over the next 12 to 18 months, given some of these initiatives you’re putting in place?

Aaron, it’s Geoff. I guess we won’t change our longstanding policy of providing earnings guidance particularly for the next quarter, but all things being equal with the opportunity to have some movement of colleagues from City of Dreams and other wholly-owned properties to Studio City, I think that does gives us an opportunity for some margin improvement, again, all things being equal. But I suppose it’s worth pointing out that the biggest beneficiary of that movement of FTEs really is Studio City. Ted pointed out before that that 2,000 group of people, colleagues at Studio City really reflects the core around which we’ve built the full team. Those people understand how we do business, the way our SOPs, our systems, et cetera, et cetera. But I think with the significant number of those colleagues being dealers, those are our seasoned dealers who are going to be able to increase the ramp up and shorten the ramp up rather relative to having an inexperienced group of dealers who need to get their hands beat up, et cetera, et cetera. So, while there’s an opportunity on the margin side for City of Dreams, the real beneficiary is Studio City.

Aaron, it’s Lawrence. On your second question, with the retail expansion addition to City of Dreams that will completely transform our retail offering within the Melco Crown family because from a so-so retail offering that we used to have at City of Dreams, now we have a great retail offering at Studio City. And now with – the retail expansion at City of Dreams is equivalent to the landmark in Hong Kong in terms of the retail space. So it’s going to be significant and we have virtually every single high end and luxury brand in the world within our portfolio. So I think going forward, the retail contribution to EBITDA will be much more significant than previously. And that’s on track to open in the middle of next year. With regards to City of Dreams fifth tower, the tower designed by Zaha Hadid, it’s very, very complicated in terms of building that tower. Even our contractor [indiscernible] probably the most experienced contractor regionally is having a hard time in terms of putting it together. But having said that, it’s going slightly behind schedule but in the current climate and timeframe, it’s good. And the same time I think we’ve changed our building philosophy as well, given the current climate. In the past, we always try to go for time and quality over cost but on this project we have been retendering a lot of the packages knowing that some of these big jobs in Macau are [indiscernible] and thereby trying to achieve better prices, better values for the job. We’re getting there but it’s probably a bit behind schedule.

Lawrence, thanks a lot for that. Is there anything else happening in City of Dreams, whether some of the non-gaming entertainment side or reconfiguring the gaming floor, anything else that is being restructured to try and defend their profit share?

No, absolutely. Studio City, we’re very, very proud of it. It’s amazing value, great amenities and interactive entertainment. But City of Dreams in terms of its premier positioning and also its location, because when an MGM Cotai opens, City of Dreams is really in the middle of everything, in the middle of the cluster. So I think over the next couple of years, there are some maintenance CapEx project to bring City of Dreams, which will effectively be almost like eight years old by the time some of those projects open up and bring it up to further standards. So there’s bits and pieces happening but the main thing is because our retail is the common link on the whole property, and so I think with the retail upgrade, that’s going to significantly change the perception of City of Dreams.

Okay. Thanks, Lawrence and thanks, Geoff.

Thanks, Aaron.

Thank you for the questions. Our next question comes from the line of Billy Ng from Bank of America. Please go ahead. Mr. Ng, your line is open. You may un-mute locally. I beg your pardon. There are no more questions at this time. I would like to hand the call back to Mr. Geoffrey Davis for closing remarks.

Okay. Thanks, everybody. Billy, give me a call directly if you have any questions. But other than that, everybody we’ll see you in three month’s time. Thanks.